Consumers Water Company
Consumers Water Company
Three Canal Plaza
Portland, Maine 04101
Fax: (207) 761-7903
Public Company Incorporated: 1926
Revenues: $401 million
Stock Exchanges: NASDAQ
SICs: 4941 Water Supply; 6719 Holding Companies, Not
Consumers Water Company is one of the best managed utilities in the United States. The company owns, through its subsidiaries, eight water utilities in six states, including Maine, Ohio, Illinois, New Jersey, New Hampshire, and Pennsylvania. Serving nearly a quarter of a million people, the company’s water systems provide an average daily production of more than 77 million gallons. Strongly adhering to the belief that all its customers deserve safe, clean water, Consumers Water has committed large sums of money to developing state-of-the-art filtration and disinfection systems to meet the stringent requirements of the federal Safe Drinking Water Act. The company’s concern for the environment is just one of its successful endeavors. As every investor knows, utility companies almost always distribute dividends on a regular basis. Consumers Water Company is no exception. Consumers has one of the longest records of uninterrupted dividend growth and distribution in the United States.
Consumers Water Company began its existence under the most auspicious circumstances imaginable. Incorporated on February 18, 1926, the firm’s original board of directors included George F. and Vernon F. West, partners in George F. West & Son, a well-known and highly successful water utility construction and management firm; Herbert Pay son and Harold C. Pay son, partners in H.M. Payson & Company, the largest and most influential underwriter of utility firms in America at that time; William B. Skelton, a lawyer who previously served as chairman of the Maine Public Utilities Commission; Philip Burgess, one of the principals from an engineering firm that designed water utility pumping stations and other facilities for the water utilities industry; and James W. Coburn, a businessman with extensive experience in accounting. Vernon F. West was chosen to serve as the company’s first president and, with the talented support of all the other board members, immediately began to implement a strategic acquisitions policy.
During the first year of the firm’s existence, management acquired four utility companies, including Kankakee Water Company located in Illinois, Penobscot County Water Company situated in Maine, Shenango Valley Water Company in Pennsylvania, and Beaver Valley Water Company, also located in Pennsylvania. In 1927 and 1928, four more utility companies were acquired and then, after a brief period of consolidation, another five utility firms were purchased during 1930. The last acquisition of the year, in December, was the Springfield City Water Company in Springfield, Missouri. A number of the companies purchased by Consumers Water were already owned or controlled by H.M. Payson & Company or George F. West & Son. Since most of these companies were purchased for stock, by the end of 1930 the firm counted over 100,000 outstanding shares of stock. Most of this stock was held by the Wests, while the remaining shares were held by other individuals sitting on the company’s board of directors.
When the Great Depression affected almost every aspect of American life in the 1930s, Consumers Water Company was hard hit by the economic instability that wreaked havoc on businesses throughout the country. In 1932, the company reduced salaries of employees making more than $20 per week by ten percent, and during the same year the firm was forced to defer the payment of a quarterly dividend on preferred stock. Yet Consumers Water Company also had a stroke of good fortune at approximately the same time. The Dartmouth Real Estate Company, a mid-sized, family-operated development firm, had arranged to lease two large warehouse facilities to A&P Company. When Dartmouth Real Estate was unable to meets its obligations to A&P, management at Dartmouth turned to the people at Consumers Water Company for help. In exchange for 50 percent ownership of Dartmouth’s stock, management at Consumers Water Company agreed to help the real estate firm fulfill its financial obligations in the deal with A&P. One of the arrangements between Dartmouth and Consumers Water involved the option for Dartmouth to buy back its stock. Unfortunately for Dartmouth, since the Depression lasted the entire decade, the option for the repurchase of the stock expired before the Dartmouth owners could exercise their option. By the end of the decade, Consumers Water Company knew that it was only a matter of time before total ownership of Dartmouth Real Estate was finalized. When management completed the deal, the acquisition of Dartmouth had the effect of doubling the size of the firm.
Consumers Water Company weathered the Great Depression better than many other businesses. The company recorded a slight profit every year during the decade of the 1930s, and was also able to use this money to upgrade and improve its properties. When World War II began, the company was confronted with a whole new set of problems which were as daunting as those experienced during the previous ten years. During wartime, utility rates within the United States were frozen. Fortunately, however, the costs of almost all of the materials needed by various utilities were also frozen. The overwhelming problem faced by Consumers Water Company was to find the necessary material to repair and maintain the facilities owned by the firm. Of equal importance was the ability to find the manpower to work for the company since almost every able-bodied young man was serving in the United States Armed Forces. Under these circumstance, Consumers Water Company did as much as it could to provide reliable and continuous service to its customers.
The postwar years were very similar to the war years for the company. During the late 1940s and early 1950s, Consumers Water Company continued to provide service for its customers on a reduced scale. Although labor was no problem, the procurement of materials remained difficult even after the war was finished. As the country began to adapt itself to a peacetime economy, however, Consumers also began to gradually recover. By the early 1950s, after Harold C. Payson replaced Vernon F. West as president, the company was poised to take advantage of its rapidly improving financial status.
In the mid-1950s, Springfield City Water Company contributed half the company’s earnings and also contained half of its investment. According to a previous agreement with the city government, the city had the option to purchase Springfield at a fair price. After the sale had been concluded, Consumers Water Company reported a profit of nearly $3.5 million, which suddenly doubled the value of the company’s stock. Since Consumers had already divested many of its holdings, only five utility firms were still under company management, the board of directors was faced with the decision of either liquidating the firm and distributing the profits or plowing the money from the Springfield sale back into additional acquisitions of water utility companies. The management at Consumers Water Company decided to implement an aggressive acquisitions policy.
A cautious group of investors, and with Fletcher W. Means assuming the position as president in 1957, it wasn’t until 1959 that the company made the first step in its new acquisition policy. The company’s first acquisition in almost 30 years was the Camden and Rockland Water Company. Additional purchases followed rapidly over the next five years, including Newport Water Company, Wilton Water Company, Wiscassett Water Company, and Damariscotta Water Company, each located in Maine. Consumers also expanded into other eastern states with acquisition of water utility companies in New York and New Jersey. During the latter years of the 1960s, the company purchased two more water companies in Maine, and other water utilities in New Jersey and Pennsylvania.
With such an aggressive acquisitions strategy, the company grew rapidly during the late 1960s. Yet under the leadership of Fletcher Means, and his successor John White, there was every attempt to implement a decentralization policy throughout the company’s operations. The subsidiaries owned by Consumers each had their own local president and board of directors. Composed primarily of local community and business leaders, these subsidiaries were granted a large degree of autonomy. At the same time, Consumers Water Company headquarters in Portland, Maine, made sure that standardization and uniformity were practiced in such areas as accounting methods, personnel practices, and customer service procedures. This decentralization policy worked especially well since local people were directly involved in the decisions of a utility company that provided service to thousands of customers.
In 1973, the company purchased Ohio Water Service Company, and over the next few years the consolidation of its services and facilities into Consumers’ preoccupied and engaged most of management’s time. During the late 1970s, however, management thought that the firm’s earnings and dividends were not keeping up with inflation and, in order to rectify this situation, hired a consulting firm to come up with a possible solution. The recommendation made by the consulting firm was to diversify the holdings of Consumers Water Company into non-utility businesses. Having already done this once with the acquisition of The Dartmouth Company during the 1930s, management developed a strategy to purchase companies that would augment the manufactured housing business.
The first acquisition under this new strategy was Burlington Homes of New England, one of the leading manufacturers of modular and mobile homes. The second purchase was Schiavi Homes, Inc., the biggest retail operation involved in the sale of mobile homes throughout New England. Management at Consumers Water Company saw the purchase of these two companies as an opportunity to pursue an organizational plan of vertical integration. With both Burlington Homes and Schiavi under its control, the non-utility business of Consumers Water Company shot up from ten to 30 percent. Unfortunately, however, the quality of Schiavi products did not meet Consumers’ expectation, and the company was sold during the mid-1980s.
Yet immediately after the diversification into manufactured housing, Consumers Water Company resumed its aggressive acquisitions plan involving water utilities. In 1984, the company purchased a wastewater utility plant north of its facility in Kankakee, Illinois; in 1985, the company purchased Roaring Creek Water Company in Shamokin, Pennsylvania; in 1986, the company acquired Inter-State Water Company in Danville, Illinois; and in 1987, the company bought Woodhaven Utilities Company in Illinois, and Califon Water Company in New Jersey.
During the late 1980s, Consumers Water Company decided to create its own subsidiaries in the field of manufactured housing. Still pursuing a grand organization strategy of vertical integration, management at Consumers created Arcadia Company, a firm involved in the development of manufactured housing communities. Arcadia’s first project was a 205-unit apartment community in Taunton, Massachusetts. Another subsidiary, C/P Utility Services Company, was also added to the firm’s non-utility holdings in a joint venture. Located in Hamden, Connecticut, C/P Utility provided a whole range of technical services, not only for water utilities but other industries as well, including meter installation, corrosion control, and leak detection. Buying out its partner in the joint venture, C/P Utility recorded $8.7 million in revenues by 1992. Later, in 1995, C/P Utility changed its name to Consumers Applied Technologies, Inc. to better reflect its involvement in the consulting and technical services of water conservation, corrosion control, distribution system evaluation, and environmental engineering.
In the early 1990s, the assets and properties of the Dartmouth Company were liquidated and Consumers Water, while maintaining a modest diversification program, decided that the firm should emphasize the ownership and operation of water utilities rather than non-utility holdings. The company underwent a series of mergers and acquisitions, and in 1994, the company’s divested itself of its homebuilding interest, Burlington Homes of New England, Inc.
During the late 1980s and early 1990s, Consumers Water Company along with the rest of the water utility industry was placed under stringent federal requirements of the Safe Drinking Water Act. The passage of this act by the United States Congress raised many fears within the industry that water utility companies would not be able to comply with the requirements of the act due to older water distribution systems and the ever-growing pattern of increased water consumption. When a severe drought swept the eastern coast of the United States during the late 1980s, many water utility companies were hit hard by the capital expenditures needed to implement systems for water rationing. But Consumers Water Company had kept pace with developing technologies within the water utility industry and was able to meet the demand caused by the drought, and the requirement of the Safe Drinking Water Act, without any difficulty.
Into the 1990s, the management team at Consumers Water Company has remained remarkably stable. John White served as president of the company from 1966 to 1984, and was then replaced by John Van C. Parker, who was in turn succeeded by
Peter L. Haynes. The long tenure of company presidents is not only indicative of stable management but careful and sound decision-making. With such able people guiding the company into the future, Consumers Water Company will remain one of the most efficiently operated utility firms in the United States.
Consumers Pennsylvania Water Company; Consumers Maine Water Company (92.1%); Consumers New Jersey Water Company (97.1%); Consumers Ohio Water Company; Consumers Illinois Water Company; Consumers New Hampshire Water Company; Consumers Applied Technologies, Inc.
DeStaebler, Douglas C, “Water Utility Industry,” The Value Line Investment Survey, November 12, 1993, p. 1416.
Leach, Mark, “Unassigned Stocks,” The Value Line Investment Survey, May 15, 1992, p. 1419.
Levenson, Maurice, “Water Utility Industry,” The Value Line Investment Survey, February 10, 1995, p. 1417.
Parker, John Van C. Parker, Consumers Water Company, New York: Newcomen Society, 1988.
Sivy, Michael, “Consumers is Actively Acquiring Firms in the Price Range of $2-$5 Million,” Wall Street Journal, April 28, 1982, p. 39.
——, “Hot and Cold Running Dividends Promise Total Returns of 9% or More,” Wall Street Newsletter, November 1994, p. 64.